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Cruise vacations are typically more affordable than hotel getaways, benefiting these stocks

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Cruise operators have been experiencing a surge in demand as travelers seek out unique experiences following the Covid-19 pandemic. Analysts at UBS and Melius Research believe that this trend is likely to continue into the future, driven by a growing interest in accumulating experiences rather than material possessions. Additionally, retiring baby boomers and millennials entering the cruising age are contributing to the industry’s growth.

UBS analyst Robin Farley points out that the gap between cruise prices and land-based hotel prices remains wider than it was in 2019, despite the growth in hotel rates driven by leisure demand. Companies like Royal Caribbean, Norwegian Cruise Line, and Carnival have seen increases in per diems, but there is still room for further growth to close the gap with land-based vacations.

Melius Research also shares a positive outlook for the cruise industry, expecting continued margin expansion over the next several years. Analyst Conor Cunningham notes that demand for cruises has been strong since early 2023, and pricing has followed suit. This shows that consumers are willing to pay higher prices for cruises, indicating sustained interest in this form of travel.

Morgan Stanley’s channel checks support the idea that bookings are normalizing and pricing remains stable among cruise operators. Analyst Jamie Rollo highlights that Carnival, Royal Caribbean, and Norwegian have received positive feedback from consumers, indicating a strong demand environment and potential for future growth in the industry.

UBS’ top pick in the industry is Royal Caribbean, with a buy rating on the stock and a price target of $168. Farley notes that the company’s Wave season has been the strongest on record, driven by increased volume and pricing. Strong consumer demand and bookings for 2024 are further ahead than they were in 2023.

Carnival is also recommended by UBS, with a buy rating and a price target of $21. Farley believes that the company’s upcoming private island, Celebration Cay, will attract more customers and help narrow the gap between cruise prices and land-based vacations. The company sees ongoing demand driven by the value gap compared to land-based vacations.

Viking is another company on UBS’ buy list, benefiting from travel demand from higher-end consumers. Farley has a price target of $35 for Viking, suggesting an 11% upside from the current stock price. However, UBS is neutral on Norwegian, citing balance sheet and execution challenges despite a strong demand environment. Norwegian recently raised its full-year earnings forecast, reflecting confidence in the company’s ability to achieve savings.

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